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GP Tactical Change - 3 May 2012

Robert Talbut has made a tactical change to the Governed Portfolios asset allocation. He has decided to scale back further our exposure to risk assets. The change takes effect from 3 May 2012.

Tactical position as at
1 March 2012

New tactical position as at 
3 May 2012

Equities

Overweight

Neutral

Corporate Bonds

Overweight

Overweight

Index-Linked Bonds

Underweight

Underweight

Property

Underweight

Underweight

Cash

Neutral

Overweight

“After a strong rally from both equities and corporate bonds we decided to reduce our overweight position to these assets in March. This was on the basis that after such a strong rally we thought progress would become far more difficult and since then risk markets have traded largely sideways. Today we are further reducing our exposure to these assets for a range of reasons. Firstly, while economic data in the early months of the year was quite encouraging in terms of the belief that the US was picking up momentum and that Europe was not faring as badly as many had feared, more recent figures would suggest that economic progression is unlikely to be as assured as was hoped. Elsewhere in the world the UK economy is definitely struggling and even in the Far East data does appear to suggest some softening in activity. Secondly, financial markets were buoyed by the injections of liquidity from the ECB which encouraged the view that the significant issues around the banking sector and sovereign debt sales were being pushed sufficiently far into the future to allow investors to suspend many of their concerns. However more lately this constructive tone has started to be replaced by an appreciation that the monetary stimulus was more of a palliative rather than a panacea and worries are again staring to grow around the unhealthy linkage between banks in Europe and the financing of their governments together with a realisation that banks were still very intent on reducing the size of their balance sheets causing a further negative impulse into the European economy. Lastly we believe that politics is likely to be a growing theme over the next few weeks. The number of governments that are struggling to implement austerity policies against a background of softening economic growth is growing and we believe that this is only likely to get worse and hence create greater uncertainty. It also appears as if the various central banks have now set a relatively high bar for the introduction of any further monetary stimulus and in effect things would need to get appreciably worse before they would act.

Therefore for all these reasons we have decided to scale back further our exposure to risk assets. The resulting asset allocation would be a neutral position in equities and smaller overweight in corporate credit, a smaller underweight in index-linked and an overweight position in cash.”

Published 8 May 2012

CAT 5W1074


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